The United States has criticized Israel's plans to build 560 new settler homes in the occupied West Bank, warning they would be part of "systematic" land seizures undermining chances for peace.

Israel's green light for the homes came days after a key report from the diplomatic Quartet -- the United States, European Union, United Nations and Russia -- warned Israel's settlement expansion and confiscation of Palestinian land were eroding the possibility of a two-state peace settlement.

Completion of the homes would "be the latest step in what seems to be a systematic process of land seizures, settlement expansions and legalizations of outposts that is fundamentally undermining the prospects for a two-state solution," State Department spokesman John Kirby said Tuesday.

"We oppose steps like these, which we believe are counterproductive to the cause of peace in general," he told a briefing.

Under new approval granted by Prime Minister Benjamin Netanyahu and Defense Minister Avigdor Lieberman, planning for 560 new Jewish homes in the large Maale Adumim settlement east of the occupied Jerusalem will be allowed to move forward.

The settlement, founded in 1975, already has a population of more than 37,000.

Israel's government has also reportedly allowed planning to move forward for 240 new homes in settlement neighbourhoods in occupied east Jerusalem.

Netanyahu on Wednesday rejected the US position.

"Construction in Jerusalem and Maale Adumim, with all due respect, is not what distances peace," he told Israeli reporters during a visit to Kigali, Rwanda.

"What prevents peace is the constant incitement against the right of Israel to exist within any borders," he said, noting also the lack of peace talks with the Palestinians.

"We're prepared to hold direct negotiations without preconditions with our neighbours, and they won't hold them with us," Netanyahu said in remarks broadcast on Israeli public radio.

Palestinian leaders say years of talks with the Israelis have not ended the occupation and they have instead focused on pursuing their cause through international bodies.

Also on Wednesday, Israel's housing ministry relaunched the bidding process to build 42 new homes in the Kiryat Arba settlement, the site of a recent deadly Palestinian attack, according to settlement watchdog Peace Now.

The approval and bidding process follow calls inside Israel for a harsh response to the latest spate of Palestinian attacks.

Peace talks have been at a complete standstill since a US-led initiative collapsed in April 2014.

*This story was edited by Ahram Online.

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